JSB FINANCIAL, INC.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of June 22, 1999 by and between JSB FINANCIAL, INC., a business
corporation organized and operating under the laws of the State of Delaware and
having its principal office at 000 Xxxxxxx Xxxx, Xxxxxxxx, Xxx Xxxx 00000
("Company"), and Xxxx X. Xxxxxx, an individual residing at (address omitted)
("Executive"). Any reference to the "Bank" in this Agreement shall mean Jamaica
Savings Bank FSB and any successor thereto.
W I T N E S S E T H :
WHEREAS, the Executive is currently serving as Senior Vice
President of the Company, and the Company wishes to assure itself of the
services of the Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of
the Company on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Company and the
Executive hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, the Executive
agrees to serve as Senior Vice President of the Company. The Executive shall
render administrative and management services to the Company such as are
customarily performed by persons situated in a similar executive capacity and
shall perform such other duties not inconsistent with his title and office as
may be assigned to him by or under the authority of the Board of Directors of
the Company (the "Board"). The Executive shall have such authority as is
necessary or appropriate to carry out his assigned duties. Failure to re-elect
the Executive as Senior Vice President of the Company (or a more senior
position) without the consent of the Executive shall constitute a breach of this
Agreement.
2. TERMS.
(a) The period of the Executive's employment under this
Agreement shall be deemed to have commenced as of the date first above written
(the "Effective Date") and shall continue for a period of 36 full calendar
months thereafter. Commencing with the Effective Date, the term of this
Agreement shall be extended for one additional day each day until such time as
the Board or the Executive elects not to extend the term of the Agreement
further by giving written notice to the other party in accordance with Section
10, in which case the term of this Agreement shall become fixed and shall end on
the third anniversary of the date of such written notice. For purposes of this
Agreement, the term "Employment Period" shall mean the term of this Agreement
plus such extensions as are provided herein.
(b) During the period of his employment hereunder, except for
periods of absence occasioned by illness, disability, holidays, reasonable
vacation periods and reasonable leaves of absence, the Executive shall devote
substantially all of his business time, attention, skill and efforts to the
faithful performance of his duties hereunder including (i) service as Senior
Vice President of the Company, and, if duly elected, a Director of the Company,
(ii) performance of such duties not inconsistent with his title and office as
may be assigned to him by or under the authority of the Board or a more senior
executive officer, and (iii) such other activities and services related to the
organization, operation and management of the Company. During the Employment
Period it shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic, industry or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as such activities do
not significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company. It is also expressly agreed that the Executive
may conduct activities subsequent to the Effective Date that are generally
accepted for an executive in his position, regardless of whether conducted by
the Executive prior to the Effective Date.
(c) Notwithstanding anything herein contained to the contrary:
(i) the Executive's employment with the Company may be terminated by the Company
or the Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement; and (ii) nothing in this Agreement shall mandate
or prohibit a continuation of the Executive's employment following the
expiration of the term of this Agreement upon such terms and conditions as the
Board and the Executive may mutually agree.
(d) Upon the termination of the Executive's employment with
the Company, the daily extensions provided pursuant to Section 2(a) shall cease
(if such extensions have not previously ceased), and, if such termination is
under circumstances described in Section 4(a) or Section 5(b), the term
"Unexpired Employment Period" shall mean the period of time commencing from the
date of such termination and ending on the last day of the Employment Period
computed with reference to all extensions prior to such termination.
(e) In the event that the Executive's duties and
responsibilities with respect to the Bank are temporarily or permanently
terminated pursuant to Section 9 of the Employment Agreement dated June 22,
1999, as it may be amended from time to time, between the Executive and the Bank
("Bank Agreement") and the course of conduct upon which such termination is
based would not constitute grounds for Termination for Cause under Section 9,
then the Executive shall, to the extent practicable, assume such duties and
responsibilities formerly performed at the Bank as part of his duties and
responsibilities as Senior Vice President of the Company. Nothing in this
provision shall be interpreted as restricting the Company's right to remove the
Executive for Cause in accordance with Section 9.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall
constitute the salary and benefits paid for the duties described in Section 1.
The Company shall pay the Executive as compensation a salary at an annual rate
of not less than (salary omitted) per year or such higher rate as may be
prescribed by or under the authority of the Board ("Base Salary"). The Base
Salary payable under this Section 3 shall be paid in approximately equal
installments in accordance with the Company's customary payroll practices.
During the period of this Agreement, the Executive's Base Salary shall be
reviewed at least annually; the first such review will be made no later than one
year from the date of this Agreement. Such review shall be conducted by a
Committee designated by the Board, and the Board may increase the Executive's
Base Salary, which increased amount shall be considered the Executive's "Base
Salary" for purposes of this Agreement. In no event shall the Executive's annual
rate of Base Salary under this Agreement in effect at a particular time be
reduced without his prior written consent. In addition to the Base Salary
provided in this Section 3(a), the Company shall provide the Executive at no
cost to the Executive with all such other benefits as are provided uniformly to
permanent full-time employees of the Bank.
(b) The Company will provide the Executive with employee
benefit plans, arrangements and perquisites substantially equivalent to those in
which the Executive was participating or otherwise deriving benefit from
immediately prior to the beginning of the term of this Agreement, and the
Company will not, without the Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would adversely affect
the Executive's rights or benefits thereunder. Without limiting the generality
of the foregoing provisions of this Subsection (b), the Executive will be
entitled to participate in or receive benefits under any employee benefit plans
with respect to which the Executive satisfies the eligibility requirements,
including, but not limited to, the Retirement Plan of Jamaica Savings Bank FSB
("RP"), the Incentive Savings Plan of Jamaica Savings Bank FSB ("ISP"), the
Jamaica Savings Bank FSB Employee Stock Ownership Plan ("ESOP"), the Benefit
Restoration Plan of Jamaica Savings Bank FSB ("BRP"), the JSB Financial, Inc.
1990 Stock Option Plan, the JSB Financial, Inc. 1996 Stock Option Plan,
retirement plans, supplemental retirement plans, pension plans, profit-sharing
plans, group life, health (including hospitalization, medical and major
medical), dental, accidental death and dismemberment, travel accident and
short-term disability insurance plans, or any other employee benefit plan or
arrangement made available by the Company in the future to its senior executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements. The
Executive will be entitled to incentive compensation and bonuses as provided in
any plan of the Company in which the Executive is eligible to participate.
Nothing paid to the Executive under any such plan or arrangement will be deemed
to be in lieu of other compensation to which the Executive is entitled under
this Agreement.
(c) The Executive's principal place of employment shall be at
the Company's executive offices at the address first above written, or at such
other location in New York City or in Nassau County or Suffolk County at which
the Company shall maintain its principal executive offices, or at such other
location as the Board and the Executive may mutually agree upon. The Company
shall provide the Executive, at his principal place of employment with support
services and facilities suitable to his position with the Company and necessary
or appropriate in connection with the performance of his assigned duties under
this Agreement. The Company or the Bank shall provide the Executive with an
automobile suitable to the position of Senior Vice President of the Company, in
accordance with prior practice, and such automobile may be used by the Executive
in carrying out his duties under the Agreement, including commuting between his
residence and his principal place of employment, and other personal use. The
Company shall reimburse the Executive for his ordinary and necessary business
expenses, including, without limitation, fees for memberships in such clubs and
organizations as the Executive and the Board shall mutually agree are necessary
and appropriate for business purposes, and travel and entertainment expenses,
incurred in connection with the performance of his duties under this Agreement,
upon presentation to the Company of an itemized account of such expenses in such
form as the Company may reasonably require.
(d) In the event that the Executive assumes additional duties
and responsibilities pursuant to Section 2(e) by reason of one of the
circumstances contained in Section 2(e), and the Executive receives or will
receive less than the full amount of compensation and benefits formerly entitled
to him under the Bank Agreement, the Company shall assume the obligation to
provide the Executive with his compensation and benefits in accordance with the
Bank Agreement less any compensation and benefits received from the Bank,
subject to the terms and conditions of this Agreement including the Termination
for Cause provisions in Section 9.
4. PAYMENTS TO THE EXECUTIVE UPON AN EVENT OF TERMINATION.
The provisions of this Section shall in all respects be
subject to the terms and conditions stated in Sections 9 and 29.
(a) Upon the occurrence of an Event of Termination (as herein
defined) during the Executive's term of employment under this Agreement, the
provisions of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank or the Company of the Executive's full-time employment
hereunder for any reason other than: following a Change in Control, as defined
in Section 5; for Disability, as defined in Section 6; for Retirement, as
defined in Section 8; for Cause, as defined in Section 9; or upon the
Executive's death; or (ii) unless consented to by the Executive, the Executive's
voluntary resignation from the Company's employ, upon any: (A) failure to elect
or re-elect or to appoint or re-appoint the Executive as Senior Vice President
of the Company, (B) material adverse change in the Executive's function, duties,
or responsibilities, which change would cause the Executive's position to become
one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Section 1, above (and any such material change
shall be deemed a continuing breach of this Agreement), (C) relocation of the
Executive's principal place of employment by more than 30 miles from its
location at the Effective Date of this Agreement, or a material reduction in the
benefits and perquisites to the Executive from those being provided as of the
Effective Date of this Agreement, (D) liquidation or dissolution of the Bank or
Company, or (E) material breach of this Agreement by the Company. Upon the
occurrence of any event described in clauses (A), (B), (C), (D) or (E), above,
the Executive shall have the right to elect to terminate his employment under
this Agreement by resignation upon written notice pursuant to Section 10 given
within a reasonable period of time not to exceed, except in case of a continuing
breach, four calendar months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination as set
forth in Section 4(a), on the Date of Termination, as defined in Section 10, the
Company shall be obligated to pay, or to provide, the Executive, or, in the
event of his subsequent death, to his surviving spouse or such other beneficiary
or beneficiaries as the Executive may designate in writing, or if neither his
estate, as severance pay or liquidated damages, or both, the benefits provided
below and a payment equal to the sum of the payments set forth below:
(i) payment of the sum of (A) the Executive's annual Base Salary
through the Date of Termination to the extent not theretofore paid and (B)
any compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the amounts described
in clauses (A) and (B) shall be hereinafter referred to as the "Accrued
Obligations");
(ii) the benefits, if any, to which the Executive is entitled as a
former employee under the Bank's or Company's employee benefit plans and
programs and compensation plans and programs;
(iii) continued group life, health (including hospitalization, medical
and major medical), dental, accidental death and dismemberment, travel
accident and short-term disability insurance benefits as provided by the
Bank or the Company, in addition to that provided pursuant to Section
4(b)(ii), if and to the extent necessary to provide for the Executive, for
the remaining Unexpired Employment Period, coverage equivalent to the
coverage to which he would have been entitled if he had continued working
for the Company during the remaining Unexpired Employment Period at the
highest annual rate of salary achieved during the Employment Period;
provided, however, if the Executive has obtained group life, health
(including hospitalization, medical and major medical), dental, accidental
death and dismemberment, travel accident and/or short-term disability
insurance benefits coverage from another source, the Executive may, as of
any month, make an irrevocable election to forego the continued coverage
that would otherwise be provided hereunder for the remaining Unexpired
Employment Period, or any portion thereof, in which case the Bank or the
Company, upon receipt of the Executive's irrevocable election, shall pay
the Executive an amount equal to the estimated cost to the Bank or the
Company of providing such coverage during such period;
(iv) if and to the extent not already provided under Sections 4(b)(ii)
and 4(b)(iii), continued health (including hospitalization, medical and
major medical) and dental insurance benefits to the extent maintained by
the Bank or the Company for its employees or retirees during the remainder
of the Executive's lifetime and the lifetime of his spouse, if any, for so
long as the Executive continues to reimburse the Bank for the cost of such
continued coverage;
(v) a lump sum payment, as liquidated damages, in an amount equal to
the Base Salary and the bonus or other incentive compensation that the
Executive would have earned if the Executive had continued working for the
Bank and the Company during the remaining Unexpired Employment Period (A)
at the highest annual rate of Base Salary and bonus or other incentive
compensation achieved by the Executive during the three-year period
immediately preceding the Executive's Date of Termination, except that (B)
in the case of a Change in Control, such lump sum shall be determined based
upon the Base Salary and the bonus or other incentive compensation,
respectively, that the Executive would have been paid during the remaining
Unexpired Employment Period including the assumed increases referred to in
clauses (i) and (ii) of Section 5(b);
(vi) a lump sum payment in an amount equal to the excess, if any, of:
(A) the present value of the pension benefits to which the Executive would
be entitled under the RP and the BRP (and under any other qualified and
non-qualified defined benefit plans maintained by the Company or the Bank
covering the Executive) as if he had continued working for the Company
during the remaining Unexpired Employment Period (x) at the highest annual
rate of Base Salary and, if applicable, the highest bonus or other
incentive compensation, respectively, achieved by the Executive during the
three-year period immediately preceding the Executive's Date of
Termination, except that (y) in the case of a Change in Control, such lump
sum shall be determined based upon the Base Salary and, if applicable, the
bonus or other incentive compensation, respectively, that the Executive
would have been paid during the remaining Unexpired Employment Period
including the assumed increases referred to in clauses (i) and (ii) of
Section 5(b), and (z) in the case of a Change in Control, as if three
additional years are added to the Executive's age and years of creditable
service under the RP and the BRP and after taking into account any other
compensation required to be taken into account under the RP and the BRP
(and any other qualified and non-qualified defined benefit plans of the
Company or the Bank, as applicable), over (B) the present value of the
pension benefits to which he is actually entitled under the RP and the BRP
(and any other qualified and non-qualified defined benefit plans) as of his
Date of Termination, where such present values are to be determined using a
discount rate of 6% and the mortality tables prescribed under section 72 of
the Internal Revenue Code of 1986, as amended ("Code"); and
(vii) a lump sum payment in an amount equal to the contributions that
would have been made by the Company or the Bank on the Executive's behalf
to the ISP and the ESOP and to the BRP with respect to such ISP and ESOP
contributions (and to any other qualified and non-qualified defined
contribution plans maintained by the Company or the Bank covering the
Executive) as if the Executive had continued working for the Bank and the
Company during the remaining Unexpired Employment Period making the maximum
amount of employee contributions required or permitted, if any, under such
plan or plans and earning (A) the highest annual rate of Base Salary and,
if applicable, the highest bonus or other incentive compensation,
respectively, achieved by the Executive during the three-year period
immediately preceding the Executive's Date of Termination, except that (B)
in the case of a Change in Control, such lump sum shall be determined based
upon the Base Salary and, if applicable, the bonus or other incentive
compensation, respectively, that the Executive would have been paid during
the remaining Unexpired Employment Period including the assumed increases
referred to in clauses (i) and (ii) of Section 5(b).
The benefits to be provided under, and the amounts payable pursuant to, this
Section 4 shall be provided and be payable without regard to proof of damages
and without regard to the Executive's efforts, if any, to mitigate damages. The
Company and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that such
liquidated damages constitute reasonable damages under the circumstances.
(c) Payments to the Executive under Section 4 shall be made
within ten days of the Executive's Date of Termination.
(d) In the event payments are made under Section 4 or Section
5, the Executive may select an individual or firm to provide him with reasonable
outplacement counseling services, and the Company shall pay for the costs of
such services; provided, however, that the cost to the Company of such
outplacement counseling services shall not exceed 25% of the Executive's Base
Salary.
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless
there shall have been a Change in Control of the Bank or Company, as set forth
below. For purposes of this Agreement, a "Change in Control" of the Bank or
Company shall mean any one or more of the following:
(i) An event of a nature that would be required to be reported in
response to Item l(a) of the current report on Form 8-K, as in effect on
the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act");
(ii) An event of a nature that results in a Change in Control of the
Bank or the Company within the meaning of the Home Owners' Loan Act of
1933, as amended, or the Change in Bank Control Act of 1978, as amended, as
applicable, and the Rules and Regulations promulgated by the Office of
Thrift Supervision ("OTS") or its predecessor agency, the Federal Deposit
Insurance Corporation ("FDIC") or the Board of Governors of the Federal
Reserve System ("FRB"), as the case may be, as in effect on the date
hereof, but excluding any such Change in Control resulting from the
purchase of securities by the Company or the Company's or the Bank's
tax-qualified employee benefit plans and trusts;
(iii) If any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities
of the Bank or the Company representing 20% or more of the Bank's or the
Company's outstanding securities except for any securities of the Bank
purchased by the Company in connection with the initial conversion of the
Bank from mutual to stock form (the "Conversion") and any securities
purchased by the Company or the Company's or the Bank's tax-qualified
employee benefit plans and trusts;
(iv) If the individuals who constitute the Board on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided, however, that any person becoming a
director subsequent to the date hereof whose election or nomination for
election by the Company's stockholders, was approved by a vote of at least
three-quarters of the directors then comprising the Incumbent Board shall
be considered as though he were a member of the Incumbent Board, but
excluding, for this purpose, any such person whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a person
other than the Board;
(v) A merger, consolidation, reorganization, sale of all or
substantially all the assets of the Bank or the Company or similar
transaction occurs in which the Bank or Company is not the resulting
entity, other than a transaction following which (A) at least 51% of the
equity ownership interests of the entity resulting from such transaction
are beneficially owned (within the meaning of Rule 13d-3 promulgated under
Exchange Act) in substantially the same relative proportions by persons
who, immediately prior to such transaction, beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of
the outstanding equity ownership interests in the Bank or Company and (B)
at least 51% of the securities entitled to vote generally in the election
of directors of the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
in substantially the same relative proportions by persons who, immediately
prior to such transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least 51% of the securities
entitled to vote generally in the election of directors of the Bank or
Company;
(vi) A proxy statement shall be distributed soliciting proxies from
stockholders of the Company, by someone other than the current management
of the Company, seeking stockholder approval of a plan of reorganization,
merger or consolidation of the Company or Bank or similar transaction with
one or more corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are exchanged
for or converted into cash or property or securities not issued by the Bank
or the Company; or
(vii) A tender offer is completed for 20% or more of the voting
securities of the Bank or Company then outstanding.
The "Change in Control Date" shall mean the date during the Employment Period on
which a Change in Control occurs. Anything in this Agreement to the contrary
notwithstanding, if the Executive's employment with the Company is terminated
and if it is reasonably demonstrated by the Executive that such termination of
employment (1) was at the request of a third party who has taken steps
reasonably calculated to effect a Change in Control or (2) otherwise arose in
connection with or anticipation of a Change in Control, then for all purposes of
this Agreement the "Change in Control Date" shall mean the date immediately
prior to the date of such termination of employment.
(b) If any of the events described in Section 5(a)
constituting a Change in Control have occurred or the Board has determined that
a Change in Control has occurred, the Executive shall be entitled to the
payments and the benefits provided below on the Change in Control Date. The
amounts payable and the benefits to be provided under this Section 5(b) to the
Executive shall consist of the payments and benefits that would be due to the
Executive and the Executive's family under Section 4(b) as if an Event of
Termination under Section 4(a) had occurred on the Change in Control Date and
that for purposes of this Section 5(b), the term Unexpired Employment Period
shall mean three years from the Change in Control Date. For purposes of
determining the payments and benefits due under this Section 5(b), when
calculating the payments due and benefits to be provided for the Unexpired
Employment Period, it shall be assumed that for each year of the remaining term
of this Agreement, the Executive would have received (i) an annual increase in
Base Salary equal to the average percentage increase in Base Salary received by
the Executive for the three-year period ending with the earlier of (x) the year
in which the Change in Control Date occurs or (y) the year during which a
definitive agreement, if any, governing the Change in Control is executed, with
the first such increase effective as of the January 1st next following such
three-year period and the second and third such increases effective as of the
next two anniversaries of such January 1st, (ii) a bonus or other incentive
compensation equal to the highest percentage rate of bonus or incentive
compensation paid to the Executive during the three-year period referred to in
clause (i) of this Section 5(b) times the Base Salary that the Executive would
have been paid during the remaining term of this Agreement including the assumed
increases referred to in clause (i) of this Section 5(b), (iii) the maximum
contributions that could be made by or on behalf of the Executive with respect
to any employee benefit plans and programs maintained by the Company and the
Bank based upon the Base Salary and, if applicable, the bonus or other incentive
compensation, respectively, that the Executive would have been paid during the
remaining term of this Agreement including the assumed increases referred to in
clauses (i) and (ii) of this Section 5(b), and (iv) the present value of the
pension benefits to which the Executive is entitled under Section 4(b)(vi) with
respect to the RP and the BRP (and under any other qualified and non-qualified
defined benefit plans maintained by the Bank or the Company covering the
Executive) determined as if he had continued working for the Bank during the
remaining Unexpired Employment Period and based upon the Base Salary and, if
applicable, the bonus or other incentive compensation, respectively, that the
Executive would have been paid during the remaining term of this Agreement
including the assumed increases referred to in clauses (i) and (ii) of this
Section 5(b). The benefits to be provided under, and the amounts payable
pursuant to, this Section 5 shall be provided and be payable without regard to
proof of damages and without regard to the Executive's efforts, if any, to
mitigate damages. The Company and the Executive hereby stipulate that the
damages which may be incurred by the Executive following any Change in Control
are not capable of accurate measurement as of the date first above written and
that such liquidated damages constitute reasonable damages under the
circumstances.
(c) Payments to the Executive under Section 5(b) shall be made
on the Change in Control Date. Such payments shall be made regardless of whether
the Executive's employment terminates.
6. TERMINATION FOR DISABILITY.
(a) In the event of Termination for Disability, the Executive
shall receive the benefits provided in Section 6(b); provided, however, that the
benefits provided under Section 6(b) shall not be deemed to be in lieu of the
benefits he is otherwise entitled as a former employee under the Bank or
Company's employee plans and programs. For purposes of this Agreement, the
Executive may be terminated for disability only if (i) the Executive shall have
been absent from his duties with the Company on a full-time basis for at least
six consecutive months, or (ii) a majority of the members of the Board acting in
good faith determine that, based upon competent and independent medical evidence
presented by a physician or physicians agreed upon by the parties, the
Executive's physical or mental condition is such that he is totally and
permanently incapable of engaging in any substantial gainful employment based
upon his education, training and experience; provided, however, that on and
after the earliest date on which a Change in Control of the Bank or Company as
defined in Section 5 occurs, such a determination shall require the affirmative
vote of at least three-fourths of the members of the Board acting in good faith
and such vote shall not be made prior to the expiration of a 60-day period
following the date on which the Board shall, by written notice to the Executive,
furnish him a statement of its grounds for proposing to make such determination,
during which period the Executive shall be afforded a reasonable opportunity to
make oral and written presentations to the members of the Board, and to be
represented by his legal counsel at such presentations, to refute the grounds
for the proposed determination.
(b) The Company will pay the Executive as Disability pay, a
bi-weekly payment equal to 100% of the Executive's bi-weekly annual rate of Base
Salary in effect on the date of the Executive's Termination for Disability. In
addition, the Company will cause to be continued insurance coverage, including
group life, health (including hospitalization, medical and major medical),
dental, accidental death and dismemberment, travel accident and short-term
disability coverage substantially identical to the coverage maintained by the
Bank or the Company for the Executive prior to his Termination for Disability.
The Disability pay and coverages shall commence on the effective date of the
Executive's termination and shall cease upon the earliest to occur of: (i) the
date the Executive returns to the full-time employment of the Company, in the
same capacity as he was employed prior to his Termination for Disability and
pursuant to an employment agreement between the Executive and the Company; (ii)
the Executive's full-time employment by another employer; (iii) the Executive's
attaining the normal age of retirement or receiving benefits under the RP or
other defined benefit pension plan of the Bank or the Company; (iv) the
Executive's death; (v) the Executive's eligibility to collect payments under the
disability provision of the RP or other defined benefit pension plan of the Bank
or the Company; or (vi) the expiration of the term of this Agreement.
(c) Notwithstanding the foregoing, there will be no reduction
in the compensation otherwise payable to the Executive during any period during
which the Executive is incapable of performing his duties hereunder by reason of
temporary disability.
7. TERMINATION UPON DEATH.
The Executive's employment shall terminate automatically upon
the Executive's death during the Employment Period. In such event, the Executive
and the Executive's legal representatives shall be entitled to the following:
(i) payment of the Executive's "Accrued Obligations;"
(ii) the continuation of all benefits to the Executive's family and
dependents that would have been provided if the Executive had been entitled
to the benefits under Section 4(b)(ii), (iii) and (iv); and
(iii) the timely payment of any other amounts or benefits required to
be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies (all such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits");
provided, however, that if the Executive dies while in the employment of the
Company, the amount of life insurance provided to the Executive by the Company
shall not be less than the lesser of $200,000 or three times the Executive's
then annual Base Salary. Accrued Obligations shall be paid to the Executive's
estate or beneficiary, as applicable, in a lump sum cash payment within ten days
of the Date of Termination. With respect to the provision of Other Benefits
after the Change of Control Date, the term Other Benefits as utilized in this
Section 7 shall include, without limitation, that the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least equal to the most
favorable benefits provided by the Company and affiliated companies to the
estates and beneficiaries of peer executives of the Company and such affiliates
companies under such plans, programs, practices and policies relating to death
benefits, if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Change in Control Date.
8. TERMINATION UPON RETIREMENT.
Termination by the Company of the Executive based on
"Retirement" shall mean termination in accordance with the Company's or the
Bank's retirement policy or in accordance with any retirement arrangement
established with the Executive's consent with respect to him. Upon termination
of the Executive upon Retirement, the Executive shall be entitled to all
benefits under the RP and any other retirement plan of the Bank or the Company
and other plans to which the Executive is a party, and the Executive shall be
entitled to the benefits, if any, that would be payable to him as a former
employee under the Bank's or the Company's employee benefit plans and programs
and compensation plans and programs.
9. TERMINATION FOR CAUSE.
The terms "Termination for Cause" or "Cause" shall mean
termination because of the Executive's personal dishonesty, willful misconduct,
any breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, conviction of a felony with respect to the Bank or the
Company or any material breach of this Agreement. For purposes of this Section,
no act, or the failure to act, on the Executive's part shall be "willful" unless
done, or omitted to be done, in bad faith and without reasonable belief that the
action or omission was in the best interest of the Company or its affiliates.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or based upon the written advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
Notice of Termination which shall include a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after reasonable
notice to the Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
the Executive was guilty of conduct justifying Termination for Cause and
specifying the particulars thereof in detail. The Executive shall not have the
right to receive compensation or other benefits for any period after Termination
for Cause.
10. NOTICE.
(a) Any purported termination by the Company or by the
Executive shall be communicated by a Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
(b) Subject to Section 10(c), "Date of Termination" shall mean
(A) if the Executive's employment is terminated for Disability, 30 days after a
Notice of Termination is given (provided that he shall not have returned to the
performance of his duties on a full-time basis during such 30-day period), and
(B) if his employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a Termination for Cause, shall
be immediate).
(c) If, within 30 days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, then, except upon the
occurrence of a Change in Control and voluntary termination by the Executive in
which case the Date of Termination shall be the date specified in the Notice,
the Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award, or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected) and provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any such dispute, the
Company will continue to pay the Executive his full compensation in effect when
the notice giving rise to the dispute was given (including, but not limited to,
Base Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
(d) The Company may terminate the Executive's employment at
any time, but any termination by the Company, other than Termination for Cause,
shall not prejudice the Executive's right to compensation or other benefits
under this Agreement or under any other benefit or compensation plans or
programs maintained by the Bank or the Company from time to time. The Executive
shall not have the right to receive compensation or other benefits for any
period after a Termination for Cause as defined in Section 9 hereinabove.
(e) Any communication to a party required or permitted under
this Agreement, including any notice, direction, designation, consent,
instruction, objection or waiver, shall be in writing and shall be deemed to
have been given at such time as it is delivered personally, or five days after
mailing if mailed, postage prepaid, by registered or certified mail, return
receipt requested, addressed to such party at the address listed below or at
such other address as one such party may by written notice specify to the other
party, as follows. If to the Executive, (address omitted); if to the Company,
JSB Financial, Inc., 000 Xxxxxxx Xxxx, Xxxxxxxx, Xxx Xxxx 00000, Attention:
President, with a copy to Xxxxxxx Xxxxxxxx & Wood, Xxx Xxxxx Xxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000, Attention: Xxxxxxx X. XxXxxxxxxx, Esq.
11. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to the Executive under this
Agreement shall be subject to the Executive's compliance with paragraph (b) of
this Section 11 during the term of this Agreement and for one full year after
the expiration or termination hereof.
(b) The Executive shall, upon reasonable notice, furnish such
information and assistance to the Company as may reasonably be required by the
Company in connection with any litigation in which it or any of its subsidiaries
or affiliates is, or may become, a party; provided, that the Company reimburses
the Executive for the reasonable value of his time in connection therewith and
for any out-of-pocket costs attributable thereto.
12. COVENANT NOT TO COMPETE.
The Executive hereby covenants and agrees that for a period of
one year following his Date of Termination, if such termination occurs prior to
the end of the term of the Agreement, he shall not, without the written consent
of the Board, become an officer, employee, consultant, director or trustee of
any savings bank, savings and loan association, savings and loan holding
company, bank or bank holding company if such position (a) entails working in
(or providing services in) New York City, Nassau or Suffolk counties or (b)
entails working in (or providing services in) any other county that is both (i)
within the Bank's primary trade (or operating) area at the time in question,
which shall be determined by reference to the Bank's business plan as in effect
from time to time, and (ii) in which the Bank engages in material or substantial
deposit-taking functions or lending activities at such time; provided, however,
that this Section 12 shall not apply if the Executive's employment is terminated
for the reasons set forth in any of Sections 4, 5, 6 or 8.
13. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid
in cash or check from the general funds of the Company.
14. EFFECT ON PRIOR AGREEMENTS.
This Agreement contains the entire understanding between the
parties hereto and supersedes any prior employment agreement between the Company
or any predecessor of the Company and the Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provisions of this Agreement shall be
interpreted to mean that the Executive is subject to receiving fewer benefits
than those available to him without reference to this Agreement.
15. EFFECT OF ACTION UNDER BANK AGREEMENT.
Notwithstanding any provision herein to the contrary, to the
extent that full compensation payments and benefits are paid to or received by
the Executive under the Bank Agreement, such compensation payments and benefits
paid by the Bank will be deemed to satisfy the corresponding obligations of the
Company under this Agreement.
16. NO ATTACHMENT.
Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
17. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to
have been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act other
than that specifically waived.
18. SUCCESSOR AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Executive, his legal representatives and testate or intestate
distributees, and the Company, its successors and assigns, including any
successor by purchase, merger, consolidation or otherwise or a statutory
receiver or any other person or firm or corporation to which all or
substantially all of the assets and business of the Company may be sold or
otherwise transferred. Any such successor of the Company shall be deemed to have
assumed this Agreement and to have become obligated hereunder to the same extent
as the Company and the Executive's obligations hereunder shall continue in favor
of such successor.
19. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any
part of any provision, is held invalid, such invalidity shall not affect any
other provision of this Agreement or any part of such provision not held so
invalid, and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
20. HEADINGS FOR REFERENCE ONLY.
The headings of Sections and paragraphs herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement. Any reference in this
Agreement to a Section or Subsection shall refer to a Section or Subsection of
this Agreement, except as otherwise specified.
21. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of
New York, without reference to conflicts of law principles.
22. INDEMNIFICATION AND ATTORNEYS' FEES.
(a) The Company shall indemnify, hold harmless and defend the
Executive against reasonable costs, including legal fees, incurred by him in
connection with his consultation with legal counsel or arising out of any
action, suit or proceeding in which he may be involved, as a result of his
efforts, in good faith, to defend or enforce the terms of this Agreement. The
Company agrees to pay all such costs as they are incurred by the Executive, to
the full extent permitted by law, and without regard to whether the Company
believes that it has a defense to any action, suit or proceeding by the
Executive or that it is not obligated for any payments under this Agreement.
(b) In the event any dispute or controversy arising under or
in connection with the Executive's termination is resolved in favor of the
Executive, whether by judgment, arbitration or settlement, the Executive shall
be entitled to the payment of all back-pay, including salary, bonuses and any
other cash compensation, fringe benefits and any compensation and benefits due
the Executive under this Agreement.
(c) The Company shall indemnify, hold harmless and defend the
Executive for any act taken or not taken, or any omission or failure to act, by
him in good faith while performing services for the Company or the Bank to the
same extent and upon the same terms and conditions as other similarly situated
officers and directors of the Company or the Bank. If and to the extent that the
Company or the Bank, maintains, at any time during the Employment Period, an
insurance policy covering the other officers and directors of the Company or the
Bank against lawsuits, the Company or the Bank shall use its best efforts to
cause the Executive to be covered under such policy upon the same terms and
conditions as other similarly situated officers and directors.
23. TAX INDEMNIFICATION.
(a) This Section 23 shall apply if a change "in the ownership
or effective control" of the Company or "in the ownership of a substantial
portion of the assets" of the Company occurs within the meaning of section 280G
of the Code. If this Section 23 applies, then with respect to any taxable year
in which the Executive shall be liable for the payment of an excise tax under
section 4999 of the Code with respect to any payment in the nature of
compensation made by the Company, the Bank or any direct or indirect subsidiary
or affiliate of the Company to (or for the benefit of) the Executive, the
Company shall pay to the Executive an amount equal to X determined under the
following formula:
X = E x P
-------------------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
E = the rate at which the excise tax is assessed under
section 4999 of the Code;
P = the amount with respect to which such excise tax is
assessed, determined without regard to this Section
23;
FI = the highest effective marginal rate of income tax
applicable to the Executive under the Code for the
taxable year in question (taking into account any
phase-out or loss of deductions, personal exemptions
and other similar adjustments);
SLI = the sum of the highest effective marginal rates of
income tax applicable to the Executive under all
applicable state and local laws for the taxable year
in question (taking into account any phase-out or
loss of deductions, personal exemptions and other
similar adjustments); and
M = the highest marginal rate of Medicare tax
applicable to the Executive under the Code for the
taxable year in question.
Attached as Appendix A to this Agreement is an example that illustrates
application of this Section 23. Any payment under this Section 23 shall be
adjusted so as to fully indemnify the Executive on an after-tax basis so that
the Executive would be in the same after-tax financial position in which he
would have been if no excise tax under section 4999 of the Code had been
imposed. With respect to any payment in the nature of compensation that is made
to (or for the benefit of) the Executive under the terms of this Agreement or
otherwise and on which an excise tax under section 4999 of the Code will be
assessed, the payment determined under this Section 23(a) shall be made to the
Executive on the earlier of (i) the date the Company, the Bank or any direct or
indirect subsidiary or affiliate of the Company is required to withhold such
tax, or (ii) the date the tax is required to be paid by the Executive.
(b) Notwithstanding anything in this Section 23 to the
contrary, in the event that the Executive's liability for the excise tax under
section 4999 of the Code for a taxable year is subsequently determined to be
different than the amount determined by the formula (X + P) x E, where X, P and
E have the meanings provided in Section 23(a), the Executive or the Company, as
the case may be, shall pay to the other party at the time that the amount of
such excise tax is finally determined, an appropriate amount, plus interest,
such that the payment made under Section 23(a), when increased by the amount of
the payment made to the Executive under this Section 23(b) by the Company, or
when reduced by the amount of the payment made to the Company under this Section
23(b) by the Executive, equals the amount that, it is finally determined, should
have properly been paid to the Executive under Section 23(a). The interest paid
under this Section 23(b) shall be determined at the rate provided under section
1274(b)(2)(B) of the Code. To confirm that the proper amount, if any, was paid
to the Executive under this Section 23, the Executive shall furnish to the
Company a copy of each tax return which reflects a liability for an excise tax
payment made by the Company, at least 20 days before the date on which such
return is required to be filed with the Internal Revenue Service.
24. NON-EXCLUSIVITY OF RIGHTS.
Except as otherwise provided herein, nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement. Notwithstanding the foregoing, in the event of a
termination of employment, the amounts provided in Section 4 or Section 5, as
applicable, shall be the Executive's sole remedy for any purported breach of
this Agreement by the Company.
25. MITIGATION; OTHER CLAIMS.
The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and such amounts shall not be reduced
whether or not the Executive obtains other employment.
26. CONFIDENTIAL INFORMATION.
The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
After termination of the Executive's employment with the Company, the Executive
shall not, without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. For purposes of this Agreement, secret and confidential
information, knowledge or data relating to the Company or any of its affiliates,
and their respective business, shall not include any information that is public,
publicly available or available through trade association sources.
Notwithstanding any other provision of this Agreement to the contrary, the
Executive acknowledges and agrees that in the event of a violation or threatened
violation of any of the provisions of this Section 26, the Company shall have no
adequate remedy at law and shall therefore be entitled to enforce each such
provision by temporary or permanent injunction or mandatory relief obtained in
any court of competent jurisdiction without the necessity of proving damages or
posting any bond or other security, and without prejudice to any other remedies
that may be available at law or in equity.
27. ACCESS TO DOCUMENTS.
The Executive shall have the right to obtain copies of any
Company or Bank documents that the Executive reasonably believes, in good faith,
are necessary or appropriate in determining his entitlement to, and the amount
of, payments and benefits under this Agreement.
1. GUARANTEE.
The Company hereby agrees to guarantee the payment by the Bank of any
benefits and compensation to which the Executive is or may be entitled to under
the terms and conditions of the Bank Agreement.
1. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any payments
to the Executive by the Company, whether pursuant to this Agreement or
otherwise, are subject to and conditioned upon their compliance with section
18(k) of the Federal Deposit Insurance Act, as amended, 12 U.S.C. ss.1828(k),
and any regulations promulgated thereunder.
SIGNATURES
IN WITNESS WHEREOF, JSB FINANCIAL, INC. has caused this
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer, and the Executive has signed this Agreement, on the 22nd day
of June, 1999.
ATTEST: JSB FINANCIAL, INC.
By:
Xxxxxx Xxxxxxxx Xxxxxx X. Xxxxxx
--------------- ----------------
Xxxxxx Xxxxxxxx Xxxxxx X. Xxxxxx
Secretary President
[Seal]
WITNESS:
Xxxx X. Xxxxxx
--------------
Xxxx X. Xxxxxx
STATE OF NEW YORK )
: ss.:
COUNTY OF NASSAU )
On this 22nd day of June, 1999, before me personally came Xxxxxx X.
Xxxxxx, to me known, who, being by me duly sworn, did depose and say that he is
the President of JSB Financial, Inc., the Delaware corporation described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such seal; that it was
so affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
Name:
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NASSAU )
On this 22nd day of June, 1999, before me personally came Xxxx X.
Xxxxxx, to me known, and known to me to be the individual described in the
foregoing instrument, who, being by me duly sworn, did depose and say that he
resides at the address set forth in said instrument, and that he signed his name
to the foregoing instrument.
Name:
Notary Public
APPENDIX A
----------
1. INTRODUCTION. Sections 280G and 4999 of the Internal Revenue Code of
1986, as amended ("Code"), impose a 20% non-deductible federal excise tax on a
person if the payments and benefits in the nature of compensation to or for the
benefit of that person that are contingent on a change in the ownership or
effective control of the Company or the Bank or in the ownership of a
substantial portion of the assets of the Company or the Bank (such payments and
benefits are considered "parachute payments" under section 280G) exceed three
times the person's "base amount" under section 280G. Section 23 of the Agreement
provides for the Executive to receive a tax indemnification payment (sometimes
referred to as a "gross-up" payment) if the payments and benefits in the nature
of compensation to or for the benefit of the Executive that are considered
parachute payments cause the imposition of an excise tax under section 4999 of
the Code. Capitalized terms in this Appendix A that are not defined in this
Appendix A have the meaning used in the Employment Agreement with the Executive.
2. PURPOSE. The purpose of this Appendix A is to illustrate how the tax
indemnification or gross-up payment would be computed. The amounts, figures and
rates used in this example are meant to be illustrative and do not reflect the
actual payments and benefits that would be made to the Executive under this
Agreement. For purposes of this example, it is assumed that a change in control
within the meaning of section 280G of the Code has occurred and that:
(a) The value of the insurance benefits required to be provided to a
hypothetical employee "Z" under sections 4(b)(iii) and 5(b) of the
Agreement for medical, dental, life and other insurance benefits
during the unexpired employment period is $23,000.
(b) The annual rate of Z's salary covered by the Agreement is $100,000,
and Z received annual salary increases of 4%, 5% and 6% (i.e., a
three-year average of 5%) for each of the prior three years. Hence,
the amount payable under sections 4(b)(v) and 5(b) of the Agreement
for salary during the unexpired employment period would be $331,013
[$105,000 + $110, 250 + $115,763].
(c) Z received annual bonuses equal to 20% of his salary in each of the
prior three years. Hence, the amount payable under sections 4(b)(v)
and 5(b) of the Agreement for bonuses during the unexpired employment
period would be $66,203 [20% x ($105,000 + $110,250 + $115,763)].
(d) The amount payable under sections 4(b)(vi) and 5(b) of the Agreement
for the present value of the additional RP and BRP accruals during the
unexpired employment period would be $45,000.
(e) The amount payable under sections 4(b)(vii) and 5(b) of the Agreement
for additional contributions to the ESOP, 401(k) Plan and BRP during
the unexpired employment period would be $20,000.
(f) Z's base amount (i.e., average W-2 wages for the five-year period
preceding the change in control) is $87,000.
3. DETERMINE IF Z IS SUBJECT TO AN EXCISE TAX. Z's parachute payments would
total $485,216 [$23,000 + $331,013 + $66,203 + $45,000 + $20,000]. Three times
Z's base amount is $261,000 [3 x $87,000]; accordingly, Z is subject to an
excise tax because $485,216 exceeds $261,000. Z's "excess parachute payments"
under section 280G of the Code are equal to Z's total parachute payments minus
one times Z's base amount, or $398,216 [$485,216 - $87,000]. If Z were not
protected by section 23 of the Agreement, Z would be subjected to an excise tax
of $79,643 [$398,216 x 20%], in addition to ordinary income taxes.
4. Compute Z's Tax Indemnification Payment. Z's tax indemnification payment
under section 23 of the Agreement would be computed pursuant to the following
formula:
E x P .2 x $398,216
X = ------------------------------------ = ----------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M] 1 - [.368874 + .0685 + .2 + .0145]
where
E = excise tax rate under section 4999 of the Code [20%];
P = the amount with respect to which such excise tax is
assessed determined without regard to section 23 of
the Agreement [$398,216];
FI = the highest effective marginal rate of income tax
applicable to Z under the Code for the taxable year
in question [assumed to be 39.6% in this example, but
in actuality, the rate is adjusted to take into
account any phase-out or loss of deductions, personal
exemptions and other similar adjustments];
SLI = the sum of the highest effective marginal rates of
income tax applicable to Z under applicable state and
local laws for the taxable year in question [assumed
to be 6.85% in this example, but in actuality, the
rate is adjusted to take into account any phase-out
or loss of deductions, personal exemptions and other
similar adjustments]; and
M = the highest marginal rate of Medicare tax applicable
to Z under the Code for the year in question [1.45%].
In this example, the amount of tax indemnification payment due to Z under
section 23 of the Agreement would be $79,643 [.2 x $398,216] divided by 0.348126
[1 - (.368874 + .0685 + .2 + .0145)], or $228,777. Such amount would be payable
in addition to the other amounts payable under the Agreement in order to put Z
in approximately the same after-tax position that Z would have been in if there
were no excise tax imposed under sections 280G and 4999 of the Code. The tax
indemnification to Z of $228,777 would in turn be a parachute payment subject to
excise tax under sections 280G and 4999. Accordingly, Z's actual excess
parachute payment would be $626,993 [$485,216 - $87,000) + $228,777)] resulting
in an excise tax of $125,399 [$626,993 x 20%]. The difference between the
indemnification. payment and the excise tax [$103,378] is an amount equal to the
sum of the income and other applicable taxes due on the indemnification payment
[($228,777 x .368874) + ($228,777 x .0685) + ($228,777 x .0145)], confirming
that the amount of the tax indemnification payment is sufficient to satisfy all
of Z's tax liability resulting from the excess parachute payment.
